December 18th 2004

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Articles from this issue:

EDITORIAL: Dr Strangeloves' Brave New World

ECONOMICS: Australia's $403 billion foreign debt: hail the banana republic!

CANBERRA OBSERVED: Utter failure of the Latham experiment

NATIONAL AFFAIRS: Where Labor failed itself - and Australia

SCHOOL EDUCATION: 'Fuzzy maths' doesn't add up

INTERNET PORNOGRAPHY: Telcos in bed with pornographers

ABORTION: Late-term abortion in Australia

STRAWS IN THE WIND: Eureka - we lost it! / The coming down of the wall / Favourite Books / Home alone

EASTERN EUROPE: Ukraine turns to the West?

PAKISTAN: Military corruption robs country's poor

UNITED NATIONS: Secretary-General Kofi Annan must resign

Long live Eureka (letter)

Kath and Kim land (letter)

Crusades re-examined (letter)

CINEMA: Japanese animation sweeping the West

BOOKS: D-DAY, by Martin Gilbert

BOOKS: THE DICTATORS: Hitler's Germany, Stalin's Russia, by Richard Overy

BOOKS: EPIDEMIC: How Teen Sex is Killing our Kids, by Meg Meeker MD

Books promotion page

Australia's $403 billion foreign debt: hail the banana republic!

by Patrick J. Byrne

News Weekly, December 18, 2004
When the then Prime Minister Paul Keating warned 18 years ago that Australia faced becoming a "banana republic", he could well have used the experience of Spain to illustrate his warning.

In 1986 Australia's foreign debt was around $78 billion, now it is $403 billion.

In his historic treatise, The Wealth and Poverty of Nations, David Landers expressed his concern at the growing foreign debt of today's United States - Australia's is proportionately worse - and warned that, ultimately, its fate could be similar to that of 16th-century Spain.

Spain extracted huge amounts of gold and silver from its Latin America colonies. Comparatively, the US and Australia are extracting, or borrowing, huge amounts of funds from the international financial markets.

Spain didn't use its new-found wealth to build an industrial and agricultural base. It used its funds to import consumer goods, manufactures, food and the finest artists from Europe.

When the gold and silver ran out, there was no productive economy to keep Spain going. In the 17th-century, Spain became the poor man of Europe, until the EU recently revived its fortunes.

Landers comments: "I have heard serious scholars say that the United States need not worry about its huge trade deficit with Japan. After all, the Japanese are giving us useful things in exchange for paper printed with the portrait of George Washington. That sounds good but it's bad ...

"Spain ... became poor because it had too much money. The nations that did the work [producing goods for Spain] learned and kept good habits while seeking new ways to do the job faster and better ...

"[O]ne might draw a moral: easy money is bad for you. It represents short-run gain that will be paid for in immediate distortions and later regrets."

The crunch for Spain came when the gold and silver ran out. The crunch for Australia will come when the markets demand usurious interest rates to satisfy lenders, or when the foreign capital dries up and we have to face repayments of over $20,000 per Australian.

Like Spain, Australia has not used its borrowings to build industries, but for consumption. Worse, much of this money has been used to buy imports, destroying manufacturing and de-industrializing Australia. Thirty years ago we were up with the rest of the world in manufacturing; now we are down to 11 per cent of GDP, around the level of Greece.

The Federal Government's response is not to promote industry-building policies, but to pursue free-trade agreements (FTAs) and more deregulation.

Following the FTA with the US, Australia is pursuing FTAs with ASEAN and China. ASEAN has been realistic in its FTA with China, where 400 "sensitive items" (such as automotive, rice, sugar and vegetable-oil products) will not face tariff reductions until 2012, and another 100 "highly sensitive" items will have tariff barriers at a maximum 50 per cent by 2015 (Australian Financial Review, November 30).

In contrast, while the recently negotiated Australia-US FTA left many "sensitive" or "highly sensitive" US industries protected, little sensitivity was shown towards Australian industries - hence the concern for how Australia will negotiate FTAs with China and ASEAN, and what that will mean for agricultural and manufacturing industries.

Australian manufacturing industries will be competing with industries that have the latest Japanese machine-tools and production workers who are paid the following: in China US80¢ per hour, Indonesia US39¢, Thailand $US1.96, and Malaysia $US2.09, according to Boston Consulting (Capturing Global Advantage, April 2004).

Australian farmers will be competing with subsidised food imports from even lower-paid farm-workers.

Further, the Federal Government wants to further "deregulate" the labour market (codeword for lowering wages). Lowering wages will only add to Australia's welfare queues.

As Taxpayers Australia has pointed out: "In the 1960s, fewer than one in 20 adults below retirement age were drawing welfare payments. Today that figure is one in five adults.

"In the 1960s there were 22 workers paying income tax for every one person wholly reliant or mainly on welfare. Today there are as few as five working taxpayers for each person on welfare.

"According to the Government's Intergenerational Report, that ratio is expected to worsen by 2030 ... "

In reality, the Hawke-Keating, and now Coalition, policies are destroying industries. There are no policies to seriously build Australia's industrial base, provide jobs, reduce the welfare-dependent underclass, reduce the social security and welfare bill, and reduce the growing foreign debt.

  • Pat Byrne

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